1. Law for Business and Personal Use © Thomson South-Western CHAPTER 9 Legal Capacity to Contract 9-1Contractual Capacity of Individuals and Organizations 9-2Limits on the Rights of Those Without Capacity

2. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 2 9-1 9-1Contractual Capacity of Individuals and Organizations GOALS Identify parties who lack contractual capacity Explain the role of capacity in organizations

3. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 3 FOCUS Have you ever tried to get out of a contract because you were young and inexperienced in the matter? Did you know that you had a legal right to disaffirm contracts made while you were still in your minority?

4. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 4 WHAT IS CAPACITY? Protections for those who lack capacity Minors Those mentally incapacitated The intoxicated

5. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 5 What three classifications of individuals lack contractual capacity?

6. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 6 WHO HAS CONTRACTUAL CAPACITY IN ORGANIZATIONS? Scope of authority Employer grants authority to employee Assumption of authority based on job title

7. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 7 In what two ways is capacity to contract on behalf of an organization created?

8. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 8 9-2 9-2Limits on the Rights of Those Without Capacity GOALS Recognize the time frame during which a contract can be disaffirmed Identify contracts that cannot be disaffirmed Discuss the effects of misrepresentation of age on contractual responsibilities

9. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 9 FOCUS Explain the following quote from Benjamin Cardozo, Associate Justice of the U.S. Supreme Court, 1932–1938. Liberty of contract is not an absolute concept. It is relative to many conditions of time and place and circumstance.

10. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 10 WHEN CAN DISAFFIRMANCE OCCUR? Any time while still under the incapacity Within a reasonable time after attaining capacity

11. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 11 WHAT MUST BE DONE UPON DISAFFIRMANCE? Loss of value Obligations of party with capacity

12. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 12 DISAFFIRMANCE TIMELINE

13. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 13 When can a person who lacks contractual capacity disaffirm a contract?

14. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 14 CONTRACTS THAT CANNOT BE DISAFFIRMED Court-approved contracts Major commitments Banking contracts Insurance contracts Work-related contracts Sale of realty Apartment rental

15. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 15 Which contracts that cannot be disaffirmed apply in all 50 states?

16. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 16 CONTRACTUAL EFFECT OF MISREPRESENTING AGE Other party to the contract may collect damages Minor still may be able to disaffirm contract

17. Law for Business and Personal Use © Thomson South-Western Chapter 9 Slide 17 If minors lie about their age, what happens in most states with regard to their ability to disaffirm contracts for goods and services that are not necessaries?